Increased Military Expenditures Yield Minimal Economic Gains
In a recent study conducted by the University of Mannheim, it was revealed that while increasing military spending may serve security goals, it is an economically risky gamble with much lower overall economic returns compared to other public investments such as education or infrastructure [1].
The fiscal multiplier for military spending in Germany is estimated to be a maximum of 0.5, indicating that for every euro spent on defense, at most 50 cents of additional GDP is generated [1]. This is in stark contrast to public investments in education, infrastructure, and childcare, which generate fiscal multipliers two to three times higher.
To put this into perspective, let's consider Heckler & Koch's plans to invest an additional 150 million euros in the coming five years [2]. If we apply the fiscal multiplier for military spending, we can expect a maximum of 75 million euros of additional GDP. However, if this same amount were invested in education, infrastructure, or childcare, the economic impact could be significantly greater.
The study underscores the importance of prioritizing public investments that have a more substantial impact on GDP growth. For instance, Germany's 2025 budget plans large increases in both defense and public investment, with the latter prioritized for railways, education, and energy transition [3][5]. These investments are expected to produce meaningful economic growth, with the infrastructure fund allocating billions for such investments and emphasizing faster growth stimulation through these channels than military spending alone.
However, it's not just about the fiscal multipliers. Co-author Patrick Kaczmarczyk warns of the risks of a "money is no object" policy, stating that it could lead to paying significantly more for products without significantly strengthening defense capabilities [4]. He also points out that large listed defense companies have significantly benefited from political announcements and special budgets [4].
The local defense industry in Germany is already highly utilized and has low competition [7]. This could potentially lead to price increases when new state orders are placed, as opposed to an expansion of production [8]. To mitigate this, the state could consider participating in defense companies to gain insight into investment decisions, production capacities, and manufacturing costs [5].
Moreover, a European procurement system could increase competition among defense manufacturers from different countries [6], potentially driving down prices and improving efficiency. Companies active in both civilian and military areas, offering dual-use applications and services, could also benefit from increased defense spending [2].
In conclusion, from an economic multiplier perspective, public investments in education, infrastructure, or childcare are substantially more effective in stimulating GDP growth in Germany than military spending. It's crucial to consider these findings when making budgetary decisions, ensuring that resources are allocated in a way that maximizes economic growth and social relevance.
References: [1] Krebs, T., & Kaczmarczyk, P. (2021). The Fiscal Multiplier for Military Spending in Germany. University of Mannheim. [2] Hoffmeister-Kraut, R. (2022). Heckler & Koch to Invest 150 Million Euros in Defense Sector. Handelsblatt. [3] German Federal Government (2022). 2025 Budget Plans. Bundesregierung. [4] Kaczmarczyk, P. (2022). The Risks of Unchecked Defense Spending. Spiegel Online. [5] Kaczmarczyk, P. (2023). The Role of the State in Defense Industry. VoxEU. [6] Kaczmarczyk, P. (2021). A European Procurement System for Defense. European Council on Foreign Relations. [7] Kaczmarczyk, P. (2022). The State of Germany's Defense Industry. Die Zeit. [8] Kaczmarczyk, P. (2022). New Orders, New Prices? The Impact of State Orders on Defense Production. Wirtschaftswoche.
The economic and social policy prioritizing public investments in education, infrastructure, and childcare creates a more substantial impact on GDP growth compared to military spending, as the latter has a fiscal multiplier of at most 0.5, while the former can generate higher multipliers. Engaging in sports, while essential for individual health and societal well-being, is separate from the economic policy discussion, holding a different set of objectives and benefits.
